Prefer to talk in person? Find a mortgage specialist on Zillow
Profile picture for NMJH

Can I get a loan/mortgage for buying the property next door and tear it down?

The house next to ours is for sale and priced as a teardown (foundation shifted). I would like to buy it, tear it down and expands our current house. Is it possible to get a loan for this? Problem is that I am selfemployed, average income last 4 years around 250K p/year, low 170K high 250K. It is no problem to put 20 or 30% down.

Our current mortgage is 390K, house value 620K. 750+ credit score. House/lot next door buying price will be around 350K, demolishing is around 20K, rebuilding 200K, so say 600K for the new lot/addition. I am curious what our options are. Thanks!
  • July 30 2014 - Lake View
  • 0
    0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

Answers (14)

Profile picture for uthinkucando
Oh and I am in MA
  • March 30
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for uthinkucando
So I have an opportunity to buy the house next door to me, is it possible to refinance my current home and at the same time add the new home into my existing mortgage in order to have just one mortgage? I would be keeping the lots separate. The home needs nothing and is worth about 50-60k more than I would be paying plus I have about 85k in equity in current home.
  • March 30
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

203k is not an option, buying with a government loan - fannie freddie fha is probably impossible because the property as is today is not going to meet health and safety minimum codes, a conventional mortgage note is not going to allow demolition-
Will city or county planning where you live allow you to combine the lots into one new APN? Planning will have setback rules, you must conform to existing zoning. How long will it take to get permits and plans to go through this process
A conventional (government Fannie FReddie FHA)  lender is not going to close a loan one house on two seperate lots and you may not be able to get permits in a completed tract- if it is rural the county may allow.
My suggestion is to do this in phases:
First find out if planning will allow, get your plans and cost breakdown together in paper exact format
Either have seller carry for a year or get private financing to buy it as is.
Apply for the permits and combining the lots and apply for a contruction loan after you
have the permits
Some city/county might take 3 months some (in California Coastal 2 years)
Construction loans have time limits and penalties when you do not finish within the time frame.

Can you leave the facade and do the work as a shell ? This would save on permit costs and time.

As to your income - Those are NET numbers and income is increasing?

Cost does not equal final appraised value  If you have $ 1,190,000 into the project are there houses nearby that sold for $1,200,000 ( cost always overruns) with the square footage you propose. If you are
overbuilding for the area appraisal will also be a pickle.

  • September 05 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

What you want to do is very plausible. You can purchase it as an Investment property and do a Construction to Perm/Draw loan. Because it's an Investment Property, you will need 20% Down of the lseeor of Total Costs (Purchase Price + Costs to Build + 10% Contigency Reserve), or the After Improved Value (whichever is less). You can choose from a 6, 9, or 12 Month Build/Lock Period. It's a One-Time Close Construction to Perm w/5 Draws (more, if needed). My Credit Union is an 80 year old Michigan Based institution that can lend in Illinois. I know it may sound cheesy, but what you're inquiring about should be no problem- as long as your income is solid. I'd like to talk to you. Please click on my name, hit the Contact tab and send me an email. I will call you. Thank you.
  • September 03 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for BrutallyHonest

No way would this work under the 203K loan. 

You will need to do a Cash out on your Current home and then buy the home/Lot next door cash.

Then you would need a Construction loan for the Renovation/Addition, you would likely have to combine the 2 lots onto a single deed prior to obtaining construction financing.

You are looking for financing close to 1M

390+350+20+200 = 990

I doubt FHA loan limits in Chicago go up to $990,000 on a single family.

  • August 22 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

It sounds like you want to buy the house next door, tear it down, and then combine the lot with yours.
Two issues:
You probably will not be able to get a loan on it with a severe foundation problem.
If you do, you are buying the house as a non-owner occupied property, not a land loan.  Most notes or security instruments have conditions for the loan, which if you violate, can cause the lender to demand repayment.  One of these is typically titled:  Preservation, maintenance and Protection of the Property.

Other options include doing a cash out refinance on your current home to get additional cash to buy the lot.  Then possibly a construction loan for the new construction on both lots.
  • August 22 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Best way to answer this question is to speak to a lender. Let me know if you'd like a referral for a great lender.
  • August 20 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for Blue Nile
Since you are not planning on renovating the home you are going to tear down, and would have difficulty getting any good rates for "lot only", your better option is likely to refinance your existing home and use the cash-out for the purchase and expansion.  Still, it sounds like you don't have the equity to do that.

But you would do well to check with the local building department for the Zoning ordinances first, to make sure you are even allowed to do what you propose.
  • August 18 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Based on your presentation if the lot next door would appraise for $350,000 and your current home would appraise for $620,000, You would have to have plans and a contractor's bid showing the demolition and construction costs to substantiate the $20,000 and $200,000. With that said you would be looking to borrow on $970,000 ($390k Current mortgage payoff, $370k purchase and demo, $200k for construction). Sounds completely in line as long as you don't have other large outstanding debt.
  • August 18 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Yes - Wells Fargo and I should be able to do a renovation loan for that scenario.  Click on my pic :)
  • August 18 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

I am with a MI based Credit Union that can write loans in Illinois. We offer 5% Down Rehab, 5% Down Construction to Perm/Draw loans, and "Cash Out" refi Construction Draw loans. I have two loans going right now that seem to match your scenario. Please click on my tab and reach out to me. I'd like to know more, but, it sounds like I can help you.
  • August 16 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for bumkeun
You may be able to do a 203k loan. I know a few lenders who do reconstruction loans if you need a referral.
  • August 07 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

You are going to need a very flexible, trusting, and understanding Lender. The Banker that is most familiar with your financial strength, would be a good start point. This is as complicated as you can make a residential Real Estate loan. They have yet to design a cookie cutter for this cookie.

What will your palace be worth after all of this creativity?

It would be a little, probably a lot, easier to sell, and move, to a more perfect place.
  • July 30 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for Matt Laricy
Its impossible for us to tell you one way or another. The best way is to speak to a lender. If you need a referral, let me know.
  • July 30 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.